How To Create A Membership Model And Boost Your Business

There may not be an acronym in the credit card processing world that is sweeter to businesses than ARB. It stands for “automatic recurring billing” and it helps guarantee companies a predictable cash flow from month to month.

One of the strategies to building a revenue stream on a solid ARB foundation is to create a “club.” Anyone who has joined a health club or country club knows that membership fees are automatically charged each month. The key word here is “join.” Whenever you can convince a customer to join your organization, the concept of an automatic recurring bill is virtually assumed.

Netflix provides a great example of ARB in action. Each of the company’s 62 million subscribers pays a monthly fee in order to have access to Netflix’s extensive cache of TV shows and movies.

But more than just an on-demand online streaming service, Netflix has created an exclusive club. It offers members content that can’t be found anywhere else – popular shows such as House of Cards and Orange is the New Black, among many others. Netflix’s “members” are able to enjoy their viewing experience anytime and anywhere. Regardless of how often customers stream content, the subscription-based model ensures Netflix’s monthly revenue will remain consistent.

Compare Netflix’s model with that of Redbox. For the latter, customers visit a Redbox location and select the movie or video game they’d like to rent, and are charged until they return it. It’s a series of one-off transactions, meaning the customer has no idea when his or her next touchpoint with Redbox will be. However, Redbox does offer their own form of “membership” which a customer can access just by providing his or her email address. Members are given special promo coupons and free rentals, but the model is still dependent on customers making the conscious effort to spend money and rent a movie.

The financial results for each business model are telling. In 2014, Redbox reported $1.89 billion in revenue. Netflix, on the other hand, nearly tripled that total in the same time span, earning $5.50 billion in revenue.

Another way to jump on the ARB bandwagon is through online buying clubs. And many brick-and-mortar retailers can create one as an adjunct to their established businesses. However, you need to create an experience that makes your “members” sense the special stature that comes with membership. Remember the American Express slogan: “Membership has its privileges”?

If you’ll let me toot the horn of a club that I think is doing a great job at this right now, I’d like to single out The Dollar Shave Club, where I’m a customer – make that a member. First I’d like to give them an “A” for innovation and risk taking. Let’s be totally honest here: Would either you or I have considered building a “club” around the humdrum chore of shaving? It’s not much more glamorous than a “One Dollar Ditch Digging Club,” when you think about it.